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(40 points) Assume that the French economy is initially in a long-run equilibrium. Below we present two different shocks to the equilibrium. For each of
(40 points) Assume that the French economy is initially in a long-run equilibrium. Below we present two different shocks to the equilibrium. For each of the two shocks below, using the aggregate supply and demand model (assume short run aggregate supply has a positive slope), analyse the short-run and long-run effects ofthe shocks on: Uthe equilibrium level of real GDP; ii) the equilibrium level of nominal GDP; and iii) the equilibrium level of unemployment. In each case, draw a diagram and include an explanation as to why the curves shift as they do. a. (20 points) French consumers, expecting that the government will not provide for them after retirement, increase their savings. b. (20 points) Good news about the future economic performance of the French economy causes businesses to increase domestic fixed investment
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